Friday, February 6, 2009

Hedging... hedging...

Here's an interesting paragraph from a recent post by Greg Mankiw, onetime head of President Bush's Council of Economic Advisers:

Some traditional Keynesians would object on the grounds that government spending has a larger multiplier than tax cuts. Even though that is the prediction of standard Keynesian models, the evidence is not completely consistent with that conclusion, as I have discussed here in previous posts
What struck me when I first read the above is that it seems to be a tremendous hedging of earlier claims by Mankiw that a recent academic study by two U.C. Berkeley economists had shown that tax cuts are more stimulatory than government spending, a conclusion that neatly fits in with the outgoing Bush administration's supply-side orthodoxy. But as Nate Silver of the blog Five Thirty Eight soon pointed out, Mankiw's reading was a distortion of what the paper in question actually concluded. Indeed, the study actually seemed to show that: (a) while in the midst of an economic boom, tax cuts do, in fact, more to stimulate the economy than government spending, however (b) in dire economic times, the opposite is true. And if you think about it, this conclusion makes intuitive sense: when the economy is roaring, the market is undoubtedly a better judge of consumer demand than the government. But when irrational economic fear has taken hold of a population, and people are stuffing their mattresses with wrinkled Benjamins, only fearless and robust government spending can be counted on to prime the economic pump to get things moving again.

Mankiw's New York Times editorial proved enormously influential among conservatives, and it along with an unsigned Editorial in the Wall Street Journal that claimed that only 12% of the Obama stimulus package was actually "stimulative," formed the basis of the GOP's two pronged attack on the Obama stimulus plan (and it's worth noting that our useless mainsteam media has more or less parroted these conclusions since). So it's interesting to see that Mankiw is now hedging. His language is a lot more guarded... indeed it seems guarded almost to the point of parody: "the evidence," Mankiw insists, "is not completely consistent with that conclusion" as if all the evidence for any proposition were ever completely consistent with its conclusion.

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